Microsoft Threat Intelligence reported that Flax Typhoon, an actor it described as China-based, had targeted dozens of organizations in Taiwan since at least mid-2021. Its August 24, 2023 account described an intrusion approach built around exploiting internet-facing systems, web shells, valid accounts, and Windows tools—alongside malware and other attacker tools. Microsoft said the activity suggested espionage and persistent access, but it had not observed the actor pursue its final objectives in this campaign.
What is Flax Typhoon?
Flax Typhoon is the name Microsoft Threat Intelligence used for a threat actor it attributed to China. Microsoft said the activity overlapped with ETHEREAL PANDA and had been active since mid-2021. Those are Microsoft’s assessments, not an independently verified government finding.
In its report published August 24, 2023, Microsoft said the actor targeted dozens of Taiwanese organizations, particularly in government, education, critical manufacturing, and information technology. It also observed some victims in Southeast Asia, North America, and Africa. Microsoft did not provide an exact victim count.
How did Flax Typhoon hack Taiwanese organizations?
Microsoft described a sequence that began with vulnerable public-facing services and continued through remote access, persistence, credential access, and lateral movement. These are the report’s observations of activity as of 2023, not a guarantee that every intrusion followed the same steps.
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1. Exploiting internet-facing applications
The actor exploited known vulnerabilities in public-facing VPN, web, Java, and SQL applications. Microsoft said it then deployed web shells, including China Chopper, to execute commands remotely.
2. Escalating privileges
When the compromised process lacked local administrator privileges, Microsoft observed the actor using tools that exploited known vulnerabilities to elevate access. Examples named in the report include Juicy Potato and BadPotato.
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3. Establishing Windows persistence
With administrator access, the actor used Windows command-line and management tools to enable remote desktop protocol (RDP) access. Microsoft reported that it disabled RDP network-level authentication and changed the registry path associated with Sticky Keys. That change could make the sign-in-screen shortcut launch Task Manager with system privileges, providing a route back into the system.
4. Setting up command and control
Microsoft said the actor downloaded SoftEther VPN using utilities such as PowerShell Invoke-WebRequest, certutil, or bitsadmin, then configured a Windows service to launch the VPN bridge. The executable was sometimes renamed to resemble a Windows component, and Microsoft observed VPN-over-HTTPS.
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The report describes lateral movement using Windows Remote Management (WinRM) and Windows Management Instrumentation Command-line (WMIC). For credential access, Microsoft observed attempts targeting LSASS process memory and the Security Account Manager (SAM) registry hive, including the use of Mimikatz.
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Why did Flax Typhoon use relatively little malware?
Microsoft described the campaign as relying heavily on living-off-the-land techniques: using built-in operating-system utilities and legitimate software to perform actions that can be harder to distinguish from normal administration. The actor also relied on valid accounts and hands-on-keyboard activity rather than depending on a large, conspicuous malware toolkit. Microsoft warned that this combination can make detection and mitigation challenging.
“Minimal malware” does not mean malware-free. Microsoft reported web shells and named tools including China Chopper, Metasploit, Juicy Potato, BadPotato, Mimikatz, and SoftEther VPN. The characterization is about the campaign’s reliance on built-in or normally benign capabilities, not the absence of malicious code or tools.
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What did Microsoft observe—and what did it not establish?
Microsoft said the activity appeared unusual because relatively little happened after the actor established persistence. It observed discovery and credential-access activity, but said those actions did not appear to lead to further data collection or exfiltration. Microsoft’s summary stated: “Microsoft has not observed Flax Typhoon using this access to conduct additional actions.”
The observed persistence and credential access led Microsoft to assess that the actor sought espionage and long-term footholds. However, Microsoft explicitly said it had not observed Flax Typhoon act on its final objectives in this campaign. The report therefore does not establish confirmed espionage collection, data theft, or a destructive outcome.
How can organizations defend against the techniques Microsoft reported?
Microsoft’s recommendations address the stages of the intrusion: reduce exposure to known vulnerabilities, protect accounts and credentials, harden Windows systems, and investigate suspicious changes. No single control is presented as a guarantee against compromise.
Reduce the chance of initial access
- Prioritize vulnerability and patch management for internet-facing servers and services, and apply Windows security updates.
- Give public-facing systems extra protection and monitoring. Microsoft recommends input validation, file-integrity and behavioral monitoring, and web application firewalls.
- Deactivate unused accounts and use strong multifactor authentication. Microsoft specifically mentions hardware security keys and Microsoft Authenticator, as well as passwordless options such as Windows Hello and FIDO2 security keys.
Limit privilege and credential exposure
- Use unique local administrator passwords managed with Windows LAPS rather than shared local credentials.
- Apply attack-surface reduction rules and harden LSASS; Microsoft also recommends Credential Guard and memory integrity.
- Use Defender cloud-delivered protection and endpoint detection and response (EDR) in block mode as part of a broader security program.
Monitor persistence and remote access
- Monitor registry changes, particularly changes that could affect sign-in behavior or persistence.
- Review RDP use and network traffic for unexpected remote-access services, VPN bridges, or connections.
- Use endpoint alerts, behavioral monitoring, and network monitoring to identify activity that may blend in with routine administration.
Respond to suspected compromise
- Change credentials that may have been compromised.
- Isolate affected systems and examine them for web shells, unauthorized services, suspicious registry changes, and signs of lateral movement.
- Where system changes cannot be trusted, consider restoring the machine to a known-good configuration.
What should defenders do with the report’s indicators?
Microsoft’s report includes historical indicators of compromise, but indicators from an August 2023 report should not be treated as current detections without validating that they remain relevant. Organizations can use the described behaviors—such as unexpected web shells, suspicious RDP configuration changes, unusual VPN services, and credential access—as investigation leads, while checking indicators against current threat intelligence and their own telemetry.
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